Personal Bankruptcy

If you are having trouble keeping up with your debts, an alternative to filing for bankruptcy is a debt management plan. In this arrangement, you make payments to a credit counseling agency which then pays creditors on your behalf according to a payment plan. Only unsecured loans such as credit card debt and personal loans can be included in a debt management plan while secured debt such as mortgage loans, car loans and student loans are not eligible.

The process starts by meeting with a credit counselor, who thoroughly assesses your financial situation. In addition to debt management, other options will be presented to you, including debt settlement, and filing for personal bankruptcy. If a debt management plan is arranged, the amount you owe will not be reduced, but rather a payment plan for a period of three to five years will be set up.

The counselor then notifies each creditor of the plan, and makes the agency the payer on your account. Depending on the circumstances the counselor can negotiate with the creditor to waive certain fees, lower interest rates and monthly payments. Each month, you pay the agency electronically, and then the agency pays your creditors.

It is important to note that creditors will most likely require accounts to be closed. However, before agreeing to the plan, you can request certain cards to be kept open for emergencies or business purposes. In addition, you will not be able to take on new credit obligations for the duration of the plan.

Lastly, if you fail to abide by the terms of your plan, creditors can begin assessing fees, raising interest rates, or begin collection activities.

In the end, debt management plans can help you get control of your finances. The benefits include making a single, lower monthly payment, stopping harassing debt collector calls, and paying down the debt over time. Ultimately, an attorney with experience in debt management and bankruptcy can help you explore your options.

Not everyone is eligible to have his or her debts discharged under Chapter 7 bankruptcy. People with larger incomes will not be permitted to use Chapter 7 to eliminate their debts. The test is that determines who is eligible for this form of protection is called the Bankruptcy Means Test. The courts consider the petitioner’s income and expenses in order to determine if a petitioner qualifies. The eligibility requirements vary from state to state. But, the first step is always to determine whether a petitioner’s median household income is the less than the median income of a household of the same size in that state. If this is the case, the test is passed and Chapter 7 bankruptcy protection is available.

Even if a petitioner’s income is more than the state’s median income, that person may still qualify for Chapter 7 protection. If a person has income higher than the state median, the courts then look at how much of that income is disposable. The court deducts necessary expenses based on regional standards to determine how much money a person has available to pay his or her bills. Expenses that would reduce a petitioner’s disposable income include, but are not limited to, taxes, health insurance costs, unreimbursed healthcare costs, court ordered payments, child support, childcare, education expenses, charitable contributions, car payments, mortgage payments and costs for the care of an elderly, infirm, or disabled person in the petitioner’s household. The information needed to make these determinations is submitted to the Bankruptcy Court in Official Form 22A, which is attached to every bankruptcy petition.

In the event that a petitioner does not qualify for Chapter 7 bankruptcy protection, the Bankruptcy Court will not discharge that petitioner’s debts. Bankruptcy protection may still be available to that petitioner under Chapter 13 which requires making monthly payments and adhering to a strict budget. There are benefits and drawbacks to filing a Chapter 13 instead of a Chapter 7, but ultimately, those who do not pass the Bankruptcy Means Test may have no choice as to how they choose to file. A lawyer will help to determine what expenses should be listed on Official Form 22A to make sure that as many options are available to his or her client as possible.

When a person files for bankruptcy protection, his or her assets must be collected by the bankruptcy trustee and liquidated to reimburse debtors before the petitioner’s debts can be discharged. In order to keep bankruptcy petitioners from falling below the poverty line, there are certain assets that can be retained as exempt. This is not an exhaustive list, but covers the most commonly used federal bankruptcy exemptions.

1. Homestead exemption: If a bankruptcy petitioner owns a home, he or she may protect up to $22,975.00 worth of equity in the home. If the home does not have $22,975.00 worth of equity, a bankruptcy petitioner may only claim as exempt the amount of equity available to claim. Those petitioners who do not own homes do not have the benefit of claiming the homestead exemption. Some states allow petitioners to exempt the entire value of his or her home’s equity, no matter how large.

2. Vehicle exemption: Throughout much of the country, it is difficult to work or earn money without an automobile. Federal law allows a person to keep his or her automobile with a value up to $3,675. If the car is worth more than the amount allowed by the exemption, an individual may seek additional funds from other exemptions to keep the asset. Alternatively, the vehicle will be sold and the exemption amount given to the petitioner.

4. Personal Injury exemption: The proceeds of a personal injury award may be held as exempt up to $22,975.00.

5. Wildcard exemption: A person is permitted to exempt as much as $1,225.00 for any other property he or she wants to keep after the bankruptcy above the other exemptions. This can be applied to increase the amount permissible to another exemption, most commonly the vehicle exemption. If the petitioner so chooses, he or she may opt to use the exemption on liquid assets, leaving the petitioner with more cash on hand after the bankruptcy is complete.

States may make other exemptions available or use different values than the federal exemptions. Nineteen states and the District of Columbia allow petitioners to use these exemptions.

When a bankruptcy petition is filed in the United States, the bankruptcy court issues an automatic stay on all collection activities against the individual who filed the petition. This means that any person or company who holds a debt against the petitioner is prohibited from seeking payment of the debt in any form or from repossessing the asset against which the debt is leveraged. This is designed to preserve the role of the bankruptcy court to consolidate and liquidate a petitioner’s assets as necessary to make creditors whole, as well as its responsibility to discharge certain debts at the end of a bankruptcy.

When a creditor continues to make collection efforts after an automatic stay has been granted, it can be penalized by the bankruptcy court. The court may award a bankruptcy petitioner punitive damages and attorney’s fees for the creditor’s noncompliance with the stay. In order to do this, a petitioner must advise his or her attorney of the violation and ask to file a motion to enforce the stay. The more flagrant the violation, the more money might be awarded in punitive damages. A single collection call is less flagrant than the filing of a lawsuit to collect the owed amount. It is not necessary to send notice of the bankruptcy to the creditor, as all creditors are notified by the bankruptcy court at the inception of each case. If the collection attempt was made by a third-party debt collector, an attorney might be able to make a claim under the Fair Debt Collection Practices Act, or the FDCPA.

There are many cases , however, when such a motion will not be successful. Sometimes, a creditor asks the court for permission to lift the stay where the debt owed is secured and a debtor is behind on payments. If proper paperwork is not completed within 30 days of a petitioner’s filing, the automatic stay may be lifted without any requests being filed with the court. A specific request for the stay to continue must be filed for some petitioners who have previously filed for bankruptcy. Court actions for child support, alimony, taxes, and certain evictions may proceed even though a stay was issued.

Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee's office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.

In any event, credit counseling is necessary even if a payment plan is not feasible.Read more . . .

If an individual filing for Chapter 7 bankruptcy owns an automobile, that vehicle may become the property of the bankruptcy estate used for the purpose of making creditors whole. If the car has a lean on it from the lending institution, the loan must be reaffirmed or redeemed, or the vehicle must be surrendered. If the loan is reaffirmed, the individual who took out the loan must sign a contract agreeing to continue making payments to the lender. The car loan will be unaffected by the bankruptcy, and the debt will not be discharged. An individual in bankruptcy may use the opportunity to renegotiate the terms of the loan for his or her benefit, though the new agreement must be approved by the bankruptcy court.

When an individual chooses to satisfy a car loan through redemption, that person must work with the lender to determine the current value of the automobile. The individual must pay the lender that amount, thereby settling the debt for less than its full value. If a person is not able to meet either of these sets of conditions, the car must be surrendered to the bankruptcy estate and the debt associated with it will be discharged. The creditor cannot take the car until after the bankruptcy is completed unless it files a motion with the court to repossess the vehicle earlier.

If there is no loan on the car, a bankruptcy petitioner still has options available. Both federal and state rules allow individuals to exempt personal possessions and motor vehicles up to a maximum value from the bankruptcy estate. If a bankruptcy petitioner is able to declare the entire value off the car as exempt or if the non-exempt value is negligible, the bankruptcy trustee will allow the petitioner to keep the car. If an automobile in bankruptcy is worth significantly more than the amount allowed by the exemption, the petitioner may pay the trustee the balance between the value of the car and the exempt portion. Althernatively, the petitioner may surrender the automobile to the bankruptcy trustee who will sell it and return the exempt portion to the petitioner. In any case, the petitioner has the right to decide what should happen to his or her car.

Bankruptcy is designed to protect individuals, small businesses, and corporations from being overwhelmed by debt. The process involves reorganization and restructuring of debt so that a significant portion of it is discharged ("forgiven"), and the remainder is repaid at a lower rate. Bankruptcy is designed to enable an individual or company to continue to function and prevent ongoing harassment from creditors. The two basic types of bankruptcy are liquidation and reorganization.

Discharge in Bankruptcy

There are several types of discharge in bankruptcy, but not all debts are able to be discharged. A secured creditor may enforce a lien to recover property secured by a particular loan, such as an automobile or a house. If the debtor wants to retain such property, payments must be paid to these creditors. Also, while many debts can be discharged, and the debtor who declares bankruptcy can be protected from harassment by most creditors, there are other debts that are deemed to be be non-dischargeable, including, taxes, penalties, fines, college loans, and child support and alimony payments.

Types of Bankruptcy

The various types of bankruptcy are named for the chapters of the U.S. Bankruptcy Code in which they are defined. . The two most common forms of bankruptcy filed in the U.S. are Chapter 7 and Chapter 13, and bankruptcies under these chapters are typically filed by individuals or couples. On the other hand, a Chapter 11 bankruptcy is usually filed by businesses.

Chapter 7 bankruptcy is also referred to as a liquidation because under this process the bankruptcy trustee can takes charge of, and sells, some of debtor's property to pay back a portion of the accumulated debt. Chapter 7 bankruptcy is designed to relieve the debtor of unsecured debts, such as credit card and medical bills. In order to qualify for Chapter 7 bankruptcy, however, the debtor must have little or no disposable income. This means that if you earn too much money, you cannot apply for this type of protection. Chapter 7 bankruptcy, therefore, is usually helpful to low income debtors with few assets, and typically discharges debts within 3 to 5 months.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, unlike Chapter 7, is a form of reorganization of debt. This filing is designed to assist debtors with regular income who can repay at least some portion of their debts through a structured repayment plan. While many debtors, because of their elevated income or asset level, find it necessary to file Chapter 13, there are also other advantages such as the ability to catch up on delinquent mortgage payments. Debtors who file for Chapter 13 are permitted to keep all of their assets as long as they make structured payments to pay off their non-dischargeable debts. Chapter 13 bankruptcy plans are usually completed within a period of 3 to 5 years.

Although the vast majority of debtors seeking individual relief from debt file for Chapter 7 or Chapter 13, there are a number of other types of filings used for various purposes. The most common of these is Chapter 11 bankruptcy.

Chapter 11 Bankruptcy isanother type of bankruptcy reorganization available to individuals, corporations and partnerships. Where Chapter 13 bankruptcy limits the amount of debt that can discharged, chapter 11 does not. Therefore, Chapter 13 is typically used by businesses undergoing financial struggles and looking to reorganize. Because it is fairly cumbersome for individuals -- being both expensive and time-consuming -- Chapter 11 is generally only used by individuals with debt levels too high for Chapter 13 filing, or by individuals with extraordinarily high assets or complicated finances.

There are a number of other chapters of bankruptcy, such as those applying to family farms or fisheries, or designed to relieve municipalities or school districts of overwhelming debt, but these do not concern the typical individual. If you find yourself burdened with debt that cannot be repaid, you should consult a bankruptcy attorney promptly to discuss your best options.

Walt Disney: Before Walt Disney became a household name, he started a company called Laugh-o-Gram with a used camera in Kansas City. His plan was to make advertisements and cartoons. When money got tight and his overhead costs were too expensive to maintain, Disney declared bankruptcy and moved to Hollywood. Five years later, he created Mickey Mouse.

Donald Trump: Donald Trump has never filed for personal bankruptcy, but the casino and hotel empire on which he has built his fortune has declared bankruptcy four times. The Trump Taj Mahal declared bankruptcy in 1991, and it worked so well that Trump Castle Associates followed suit in 1992. In 2004 Trump Hotel and Casino Resorts filed bankruptcy, and, most recently, Trump Entertainment resorts filed bankruptcy in 2009 after it missed a $53.1 million bond payment. He severed his ties with the remaining casinos in Atlantic City, including two that declared bankruptcy in 2014. Trump has no regrets for these bankruptcies saying, "I have used the laws of this country ... the [bankruptcy] chapter laws, to do a great job for my company, for myself, for my employees, for my family,"

Larry King: Larry King filed for bankruptcy in 1978 with $352,000.00 in debt. He had been struggling to find work as a journalist for years. Luckily, that same year, CNN offered him a job as a late night talk radio host in Washington DC. Later, this show became Larry King Live, which ran for 25 years. He is thought to be worth $150 million.

Cyndi Lauper: In 1981, Cyndi Lauper was working in a Japanese restaurant and in retail trying to make ends meet while waiting for her music career to take off. It took a little longer than she could manage, so she declared bankruptcy, two years before she released her breakout album, “She’s so Unusual.” Her net worth is now approximately $30,000,000.00.

Milton Hershey: Milton Hershey was always better at making candy than he was at running a business. His first two attempts at a candy shop went bankrupt, one in Philadelphia, and one in New York City. He sold his third company for a million dollars in 1900, and went on to create the recipe for milk chocolate for which his fourth company was so well known.

Henry Ford: Henry Ford’s first attempt at car manufacturing was called the Detroit Automobile Company. In two years, the company only produced twenty cars and went bankrupt. The company changed its name to the Henry Ford Company before its founder left to create the Ford Motor Company. The reorganization helped the Henry Ford Company tremendously which still exists and operates as Cadillac Automobile Company.

Immediately upon the filing of a Bankruptcy petition, a petitioner is granted the protection of an automatic stay. This means that creditors must cease all collection activity, including repossession, garnishment, law suits, phone calls, letters, or any other attempts to collect on the debt. If they fail to do so, they are in violation of the stay.

If a creditor attempts to collect a debt after the filing of a Bankruptcy petition, the Petitioner should let the creditor know that a claim has been filed. It may have been an honest error and the creditor may stop attempts to collect and correct any actions taken after being told that a bankruptcy was filed.Read more . . .

It seems like a perfect plan. If a consumer is about to declare bankruptcy to discharge all or most of his or her debts, why wouldn’t that consumer try to increase his or her credit card debt as much as possible to maximize the benefit granted by bankruptcy protection? The answer is simple. It won’t work.

Generally speaking, credit card debts are dischargeable in bankruptcy. However, a bankruptcy trustee examines a consumers spending in the months leading up to a bankruptcy petition. If excessive amounts are charged to a credit card prior to the claim being filed, the credit card company may file an adverse proceeding challenging the bankruptcy petition and preventing the debt from being discharged. If luxury items were purchased, or items not necessary for the support and maintenance of the debtor, those charges might not be discharged. Examples of items that might be considered luxury purchases by the court include vacations, expensive clothing or cosmetics, additional vehicles, household furnishings, jewelry, artwork, magazine subscriptions, cameras, and computers. Any charge of more than $650.00 will set off red flags, both with the bankruptcy trustee and the creditor.

If cash advances were taken out in the months immediately preceding the petition, the creditor may sue the consumer for fraud. If the cash advance is for more than $925.00, there is a presumption that the debt is not dischargeable. If a consumer makes payments on the debt prior to declaring bankruptcy, it can help to demonstrate that he or she had intended to repay the debt. Showing that an unexpected life event occurred making the bankruptcy unavoidable can also help a creditor to prove that he or she had no intention to defraud creditors.

If a consumer makes expensive purchases immediately before declaring bankruptcy, it is counter-productive. The debts will not be discharged, meaning that the consumer will still be in debt, even after having completed all the requirements of the Bankruptcy Court. The goods and services purchased will not be worth the debt that remains after the bankruptcy is completed effectively ruining the consumer’s credit without a benefit. The entire Bankruptcy Petition might be dismissed for the attempted fraud. Participating in suspicious spending that might provoke a challenge from a creditor is a bad idea. As inviting as it might seem to load up on debt before seeking a discharge, the system is designed to prevent consumers from doing so.

Bankruptcy Fraud: It cannot be overstated how important it is to tell the truth and accurately disclose all income assets, debts, and other required information when preparing a Bankruptcy Petition. If a Court finds that a Petitioner committed a willful fraud, the Petition will likely be dismissed. The Court may also impose criminal penalties including fines and incarceration.

Failing the Means Test: In order to be granted a discharge under Chapter 7 Bankruptcy protection a Petitioner’s disposable income must be low enough to pass the means test. The Court compares the Petitioner’s average income for the six month period before filing and compares it to the state median for a similar household. If the Petitioner’s income is below the median, than he or she qualifies automatically. However, if the Petitioner makes more than half median income, the Court must examine the Petitioner’s expenses to determine whether he or she qualifies for a discharge. If the means test is failed, the Trustee will likely offer the Petitioner the opportunity to convert the Bankruptcy to a Chapter 13 reorganization instead of a discharge before dismissing the Petition altogether.

Failure to Complete Mandatory Credit Counseling Courses: Every Bankruptcy Petitioner is required to complete two credit counseling courses as a part of the Bankruptcy proceeding. The course can be completed online or over the phone. After the course is taken, a certificate proving it was completed must be filed with the Court. If a Petitioner is not in compliance with this procedure, the case will be dismissed by the Trustee.

Not Paying Filing Fees: If a Petitioner is indigent, he or she may apply for a waiver of Court fees, but unless a waiver is granted, a case will be dismissed for failure to pay filing fees., you may apply for a waiver of your court fees. The court will take into account your income and expenses when granting or denying your waiver. Unless you receive a waiver, the court will dismiss your case if you fail to pay the required filing fees.

Improperly Completing Forms or Failure to Submit all Required Documents: It is important to take time and ensure that all paperwork filed with the Court is completed properly. If any financial disclosures, forms, schedules, or other documents required by the court are improperly completed or omitted, or if any information is missing, a bankruptcy court might dismiss the Petition. If the trustee requests pay stubs, tax returns, or other documents to verify the information in the Petition, it would behoove the petitioner to get that documentation to the Trustee as quickly as possible.

Not Attending the Meeting of Creditors: Early on in the Bankruptcy process, the Trustee holds a meeting of creditors to allow a Petitioner’s creditors to appear and ask questions under oath about the papers submitted. This process usually lasts only a few minutes and creditors rarely appear, but if a Petitioner fails to appear, the Trustee will likely dismiss his or her claim.

Failing to Make Chapter 13 Plan Payments: Reorganization plans under Chapter 13 of the Bankruptcy code are designed to allow Petitioners some breathing room to pay off their debts with more reasonable monthly payments. However, the Petitioner must act in good faith when preparing a repayment plan and afterwards, by actually making the payments. If the payments are not made without a good reason, the Bankruptcy will be dismissed.

Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.